SEC Division of Investment Management staff letter: Pilgrim America, Inc.

Our Ref No 96-259-CC
RESPONSE OF THE OFFICE OF CHIEF COUNSEL Pilgrim America Group Inc DIVISION OF INVESTMENT MANAGEMENT File No 132-3 Your letter of May20 1996 requests 4ur assurance that we would not recommend enforcement action to qhe Commission under
section 15a of the Investment Company Act of 1940 the
Investment Company Act if Pilgrim .Ameri4a Group Inc PilgrimAmericaTM pledges all of the outtanding voting securities of its wholly owned subsidiary Pilgrim America Investments Inc PAl without obtaining approval of new advisory contracts by the shareholders of the Pilgrim America Group of Funds the Funds PAl serves as investment adviser to the Funds Pilgrim America and its affiliates have entered into credit agreement the Credit Agreement with First Bank Ntional Association the Bank under which the Bank will loan funds to Pilgrim America and its affiliates 1/ As co11atexal for the loan Pilgrim America will pursuant to pledge agreement the Pledge Agreement pledge to the Bank all of the outstanding voting securities of PAl You state that in accordance with the Pledge Agreement the Bank would take possession of the certificates representing PAls voting securities in order to perfect the Banks security interest in those securities You also state however that Pilgrim America would retain all voting and other rights with respect to the securities and the Pledge Agreement would give the Bank no authority to take part in or influence the management of PAl or the Funds
Section 15a of the Investment Company Act states that
an investment advisory contract with registred investment company must provide in substance for its automatic termination in the event of its assignment Section 2a of the Investment Company Act defines assignment to include any direct or indirect transfer or hypothecation of contract or chose in action by the assignor or of controlling block of the assignors outstanding voting securities by security holder of The proceeds of the Credit Agreement will be used among other purposes to finance the distribution of certain classes of shares of certain open-end Funds 2/ You state that the Pledge Agreement provides that Pilgrim America must not exercise or refrain from exercising any voting rights if such action could reasonably be expected to have material adverse effect on the value of PAls securities See infra note [Pub. Avail.: Oct. 8, 1996]

-2- the-assignor Rule 2a-6 under the Investment Company Act provides safe harbor from the definition of assignment for any transaction that does not result in change of actual control or management of the investment adviser to an investment company You maintain that Pilgrim Americas pledge of PAls securities should not be considered hypothecation of controlling block of voting securities within the meaning of
section and thus should not result in an assignment
triggering the application of section 15 You also maintain that even if the pledge is considered hypothecation of voting securities the pledge is not an assignment under rule 2a-6 because it will not result in any change of actual control or management of PAl In enacting the Investment Company Act Congress specifically found that the national public interest and the interest of investors are adversely affected when control or management of investment companies is transferred without the consent of their security holders 3/ Section 15a was intended to prevent such trafficking in investment advisory contracts Consistent with the purpose of section 15a
section 2a includes in the definition of assignment
transfers or hypothecations of controlling block of the assignors voting securities transactions that presumably would transfer to another person the ability to control or manage an investment adviser To determine whether there has been transfer or hypothecation of controlling block of securities for purposes of section 2a it is necessary to look to section 2a of the Investment Company Act ./ which defines control as the ability to exercise controlling influence over the management or policies of company and presumes such control when person beneficially owns more than 25s of companys voting securities The definition of assignment in section 2a does not however include fl changes in control but only those involving the transfer or hypothecation of controlling block of voting ./ Section 1b of the Investment Company Act findings and declaration of policy 4/ Hearings on 3580 before Subcornm of the Senate Comm on Banking and Currency 76th Cong 3d Sess 253 1940 statement of David Schenker See Dean Witter Discover Co pub avail Feb 1993 See also Wiliheim Murchison 342 F.2d 33 37-39 2d Cir cert denied 382 U.S 840 1965

-3- securities 6/ The relevant inquiry then in determining whether there has been such transfer or hypothecation is whether the transferee or pledgee has as result of the transaction assumed sufficient voting interest to enable the person to exercise the ability to direct the management or policies of the adviser 1/ In the transactiondescribed in your letter the pledge of PAls securities is not accompanied by the right to vote those shares 8/ In the absence of transfer of voting rights pledge of securities ordinarily cannot be considered an assignment within the meaning of section 2a Based on the facts and representations in your letter particularly your representations that Pilgrim America would retain all voting and other rights with respect to the securities and that the Pledge Agreement would give the Bank no authority to take part in or influence the management of PAl or the Funds we would not recommend that the Commission take any enforcement action under section 15a if Pilgrim America pledges Wiliheim Murchison 342 F.2d at 40 This analysis is consistent with the legislative history of the Investment Company Act because without the transfer or hypothecation of such voting interest the abuses Congress sought to prevent through section 15a cannot occur ../ You assert that the provision of the Pledge Agreement providi.ig that Pilgrim America must not exercise any voting right in such manner as to have material adverse effect on the value of PAls voting securities will not limit significantly Pilgrim Americas voting rights because it generally will be in Pilgrim Americas best interests not to take any actions that would adversely affect the value of PAls securities You also state that although under the Pledge Agreement the Bank has the right at any time even in the absence of default to cause the certificates representing PAls voting securities to be transferred of record into the name of the Bank or its nominee this would not affect any of the rights retained by Pilgrim America with respect to those securities 9/ In the event of default however the Bank would have the right under the Pledge Agreement to sell the securities of PAT that the Bank holds as collateral and could exercise all voting rights with respect to the securities The default would result therefore in an assignment of PAls investment advisory contracts within the meaning of section

-4-
PAI..s securities without obtaining shareholder approval You should note that different facts or representations might require different conclusion Aot Sarah JaM WagntÆn Attorney 10/ See Funds Inc pub avail Aug 12 1976 Wall Street Management Corporation pub avail Sept 1974 Because we do not consider the pledge to constitute an assignment within the meaning of section we do not find it necessary to analyze your request under rule 2a-6

LAW OFFICES OF
477 MADISON AVENUE DECHERT PRICE RHOADS TEN POST OFFICE SQUARE SOIffl-f NEW YORK NY 10022-5891 BOSTON MA 02109-4603 212 326-3500 1500 STREET N.W 617 728-7100 4000 BELL AUANTIC TOWER WASHINGTON DC 20005-1208 90 STATE HOUSE SQUARE 1717 ARCH STREET HARTFORD Cr 06103-3702 P1-IILAEELPHIA PA 19103-2793 860 524-3999 215 994-4000 TELEPHONE 202 626-3300 65 AVENUE LOUISE il-IIRTY NORTH THIJW SflEEf 1050 BRUSSELS BELGIUM HARRISBURG PA 17101-1603 FAX 202 626-3334 32-2 S35-5411 717 237-2000 TITMUSS SAINER DECHERT PRINCETON PIKE CORPORATE CENTER SERJEANTS INN P.O BOX 5218 LONDON EC4Y 1LT ENGLAND PRINCETON NJ 08543-5218 44-171 583-5353 609 520-3200 151 BOULEVARD HAU5SMMN 75008 PARIS FRANCE 33-1 53 83 84 70 Sections 2a4 and 15a of the Investment Company Act of 1940 and Rule 2a-6 thereunder May 20 1996 Jack Murphy Associate Director and Chief Counsel Division of Investment Management Securities and Exchange Commission 450 Fifth Street N.W Washington D.C 20549 Re Assignment of Investment Advisory Contracts Dear Mr Murphy On behalf of Pilgrim America Group Inc Pilgrim America Pilgrim America Investments Inc the Investment Manager and the investment companies in the Pilgrim America Group of Funds the Funds we are writing to seek assurance that the staff of The open-end Funds currently consist of Pilgrim America MagnaCap Fund Pilgrim America High Yield Fund Pilgrim Government Securities Income Fund Inc Pilgrim America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value Fund and Pilgrim America Masters LargeCap Value Fund collectively referred to as the Open-End Funds Pilgrim America High Yield Fund and Pilgrim America MagnaCap Fund are each series of Pilgrim America Investment Funds Inc and Pilgrim America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value Fund and Pilgrim America Masters LargeCap Value Fund are each series of continued..

May 20 1996 the Division of Investment Management would not recommend enforcement action to the Commission under Section 15a of the Investment Company Act of 1940 the 1940 Act if Pilgrim America pledges all of the outstanding voting securities of the Investment Manager in connection with credit agreement and certain related agreements between First Bank National Association the Bank and Pilgrim America dated as of April 28 1995 the Credit Agreement The proieeds of the Credit Agreement will be used among other purposes to finance the distribution of certain classes of shares of each of the open-end funds in the Pilgrim America Group of Funds the Open-End Funds Introduction Pilgrim America and the Investment Manager are each organized as Delaware corporations The Investment Manager serves as investment manager to each of the Funds pursuant to investment management agreements the Investment Management Agreements The Investment Management Agreements for Pilgrim America MagnaCap Fund Pilgrim America High Yield Fund and Pilgrim Government Securities Income Fund Inc the Elite Series were approved by shareholders of each of the Elite Series funds at meetings held on April 1995 The Investment Management Agreement for Pilgrim America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value Fund and Pilgrim America Masters LargeCap Value Fund the Masters Series was approved by the sole shareholder of each of th Masters Series funds by written consent on June 27 1995 The Investment Manager is wholly owned subsidiary of Pilgrim America which in turn is wholly owned subsidiary of Express America Holdings Corporation publicly owned company the shares of which are traded on the NASDAQ National Market System Express America Through its subsidiaries Express America engages in the financial services business primarily the management and distribution of investment companies The Investment Manager began serving as Investment Manager for each of the Elite Series funds as of the close of business on April 1995 in connection with the acquisition by Express America Pilgrim America the Investment Manager and Pilgrim America Securities Inc Distributor Distributor to the Open-End Funds of certain of the assets of the former Pilgrim Group Inc and its affiliates the Acquisition Prior to the Acquisition Pilgrim Management Corporation subsidiary of Pilgrim Group Inc served as investment adviser ...continued Pilgrim America Masters Series Inc The closed-end investment companies in the Pilgrim America Group of Funds are Pilgrim America Prime Rate Trust and Pilgrim America Bank and Thrift Fund Inc collectively referred to as the Closed-End Funds

May 20 1996 to the Funds Pilgrim America Investments Inc and Pilgrim Management Corporation are not affiliated with each other Each Open-End Fund has implemented multiple-class pricing system in compliance with Rules 6c-10 and 18f-3 under the 1940 Act.2 Pilgrim America and its affiliates have entered into the Credit Agreement with the Bank whereby the Bank will lend funds to be used for among other purposes financing the sale of certain classes of the Open-End Funds shares During the negotiation of the Credit Agreement the parties considered various options regarding the structure of the lending arrangements and concluded among other things that Pilgrim Americas pledge of all of the outstanding voting securities of the Investment Manager pursuant to pledge agreement the Pledge Agreement would provide the most favorable terms for Pilgrim America Pilgrim America with the consent of the Bank has not yet pledged the securities of the Investment Manager because of concern that this might be deemed an assignment of the Investment Management Agreements between the Funds and the Investment Manager under
Section 2a4 An assignment would terminate the Investment Management Agreements
and require approval of new Investment Management Agreements by the Board of Directors/Trustees and shareholders of each Fund in accordance with Section 15a Consequently the Bank and Pilgrim America agreed that Pilgrim America would submit this no-action request seeking the staffs views on this issue Under the terms of the Pledge Agreement the Bank would merely hold the voting securities of the Investment Manager as collateral for the loan Pilgrim America would deliver the certificates representing the Investment Manager securities to the Bank for the sole purpose of perfecting the Banks security interest in the securities for purposes of the Uniform Commercial Code.3 The Bank has the right at any time even in the absence of default to cause the certificates to be transferred of record into the name of the Bank or its nominee although this would not affect any of Pilgrim Americas rights with respect to these securities Pilgrim America will retain all voting and other consensual rights with respect to the Investment Manager securities but Pilgrim America must not exercise or refrain from exercising any voting rights if this action could reasonably be expected to have material adverse effect on the value of the Investment Manager securities or any material Under the Open-end Funds multi-class pricing systems three classes of shares are offered Class shares are sold with front-end sales charge Class shares are sold subject to contingent deferred sales charge and Class shares are sold with front-end sales charge that is less than that imposed on Class shares In that regard the Bank and Pilgrim America also have entered into related security agreement

May 20 1996
part thereof The Pledge Agreement states that the powers conferred on the Bank are
solely to protect its interest in the collateral Manager securities The Pledge Agreement does not grant the Bank any authority to take part in the management of the Investment Manager and therefore of the Funds confers no voting rights in the Investment Managers voting securities in the absence of default and does not grant the Bank any right to exercise any other influence over the management or control of the Investment Manager In the event of default the Bank would have certain rights as specified in the Credit Agreement and the Pledge Agreement including the right to sell the Investment Manager seôurities and to exercise all voting rights with respect to these securities Our request for no-action relief is limited to the period prior to which the Bank exercises its rights upon default In addition any sale of the Investment Manager securities or retention by the Bank of title to the Investment Manager securities after default presumably would be deemed an assignment of the Investment Management Agreements under Section 2a4 of the 1940 Act and in this event would terminate these Agreements unless each Fund received the prior approval of this assignment from its Board and shareholders Presumably the Bank would not exercise any voting rights with respect to the Investment Managers securities without the prior approval of shareholders of the Funds The staff has announced its position that as matter of policy it will no longer respond to routine no-action or interpretive requests regarding the application of Rule 2a-6 to particular transaction However as discussed below we believe that this is not the type of issue for which the staff promulgated its no-response policy We also believe that in light of the Commissions recent adoption of Rules óc-1O and 18f-3 and the proliferation of multiple class pricing structures it would be extremely useful to the mutual fund industry for the staff to issue guidance with respect to this specific issue Discussion
Section 15a sets forth certain provisions that must be included in every investment
advisory contract with registered investment company Section 15a4 states that an investment advisory contract must provide in substance for its automatic termination in the event of its assignment Assignment is defined in Section 2a4 as any direct or indirect transfer or hypothecation of contract or chose in action by the assignor or of controlling block of the assignors outstanding voting securities by security holder of the assignor Pilgrim Americas pledge of all of the outstanding voting securities of the Investment Manager could be deemed hypothecation of controlling block of the voting securities of the Investment Manager and thus could result in an assignment under Section 15a4 Nevertheless we believe that the proposed transaction should not be deemed an assignment for purposes of Section 15a4 Since pledging the stock of the Investment Manager would not result in any change of actual control or management of the Investment Manager this

May 20 1996 pledge would fall squarely within the safe harbor provided by Rule 2a-6 under the 1940 Act Finally the proposed pledge would not raise any of the policy concerns that Section 15a was designed to address The Pledge of Stock Should Not Be Deemed An Assignment For Purposes Of
Section 15a4
Rule 2a-6 provides among other things that transaction that does not result in change of actual control or management of the investment adviser to an investment company is not an assignment for purposes of Section 15a4 Rule 2a-6 was adopted in recognition that time to time an investment adviser to an investment company could engage in certain transactions particularly modifications of corporate structure which may be considered to involve direct or indirect transfer of controlling block of voting securities but which would not affect the actual control or management of the adviser.4 Absent Rule 2a-6 such transaction might be viewed as an assignment within the meaning of Section 2a4 thereby terminating automatically the investment advisory contract with the investment company.5 We believe that the proposed pledge of the voting securities would not result in any change in actual control or management of the InvestmenL Manager and therefore would fall squarely within the safe harbor of Rule 2a-6 Although Rule 2a-6 primarily was intended to codify staff no-action positions that addressed modifications of corporate structure the Commissions statement in the proposing release that an investment adviser could engage in certain transactions particularly modifications of corporate structure indicates that the Commission did not intend that the Rule be Jimited solely to modifications of corporate structure Moreover the Commissions statement in the adcpting release that transferring actual control or management to receiver would constitute an assignment indicates that the Commission was concerned that the Rule would be read to include this type of transaction further demonstrating that the Rule was designed to encompass more than modifications of corporate structure Further the pledge would not result in change of actual control Under the terms of the Pledge Agreement the Bank would merely hold the voting securities of the Investment Manager as collateral for the loan and would not have any control over the Investment Manager Control is defined in Section 2a9 of the 1940 Act as the power to exercise controlling influence over the management or policies of company The Investment Company Act Rel No 10809 Aug 1979 proposing Rule 2a-6 Id Investment Company Act Re No 11005 Jan 1980 at -- -- -- --

May 20 1996 most important aspect of determining corporate control is the ability to elect directors Since the Bank will have no voting rights with respect to the Investment Manager securities prior to default and generally will not exercise voting rights after default without shareholder approval it would be difficult to regard the Bank as having any contrQl over the Investment Manager.7 Under the Pledge Agreement Pilgrim America must not exercise or refrain from exercising any voting rights if this action could reasonably be expected to haye material adverse effect on the value of the Investment Manager securities or any material
part thereof This generally is standard loan documentation provision and does not limit
in any meaningful way Pilgrim Americas voting rights with respect to the Investment Manager securities since it is also in the best interests of Pilgrim America not to take any actions that would have material adverse effect on the value of the Investment Manager securities In addition in the absence of default the Bank will have no ability under the Pledge Agreement to exercise any influence over the management or policies of the Investment Manager and therefore of the Funds As indicated above the Commission stated in the adopting release for Rule 2a-6 that transferring actual control or management to receiver would constitute an assignment.6 Our request is consistent with this apparent The presumption of control found in Section 2a9 supports this view Under
Section 2a9 person generally is presumed to control company if that person
owns beneficially more than 25% of the voting securities of the company Voting security generally is defined in Section 2a42 of the 1940 Act as security that provides the right to vote for the election of directors Thus as Congress recognized even significant share ownership is not sufficient to presume the existence of control unless the shares carry the right to vote for the election of directors Furthermore the presumption of control results from the ownership of voting securities secured party under Article of the Uniform Commercial Code does not own collateral pledged to it but has the right to dispose of the debtors ownership interest in that collateral to satisfy the secured obligations Unif Comm Code 9-101 official comment U.LA 61 1992 see Unif Comm Code 9-5011 3B U.LA 10 1992 The right to dispose of the collateral becomes effective upon default not upon the pledge of the security Unif Comm Code 9-5011 3B U.L.A 10 1992 note and accompanying text above In one instance however the staff agreed not to recommend enforcement action to the Commission if certain investment advisers and/or principal underwriters continued to perform under their respective agreements without further interestholder vote even though the parent company of the investment advisers and principal underwriters was subject to state insurance continued..

May 20 1996 attempt by the Commission to define an outer limit to the scope of Rule 2a-6 Here the transfer of securities to the Bank to collateralize loan does not provide the Bank with powers that are equivalent to those of receiver in an insolvency situation receiver would have control over the assets and business of company In our case the Bank is not able to exercise control over the assets or business of the Investment Manager but merely stands ready to protect the Banks inierests in the event of default by the borrower situation that is well within the outer limit noted by the Commission Granting the requested relief also would be consistent generally with the staffs prior positions in this area On two occasions the staff has agreed not to recommend enforcement action if shares of stock of an investment adviser were pledged to lender as collateral in connection with the acquisition of an investment adviser.9 In each of these instances the party pledging the securities retained all rights vested in the pledged securities as the owner of the shares except the right to possession of the certificates representing the shares As in our case share certificates were transferred to perfect the lenders security interest in the stock 8...continued commissioner rehabilitation order the functional equivalent of being placed in receivership Mutual Benefit Fund et al pub avail Aug 23 1991 Mutual Benefit The rehabilitation order granted the commissioner immediate exclusive possession and control of and title to the business and all of the assets contracts causes of action books records bank accounts certificates of deposit funds securities or other funds and all real or personal property of any nature of Mutual Benefit Funds Inc pub avail Aug 12 1976 Wall Street Management Corp pub avail Sep 1974 In each of these letters the parties stated that shareholder approval of new investment advisory agreements would be sought in connection with the acquisition of the investment adviser and that the pledge would be disclosed in the proxy statements on this vote However it is clear that the pledge itself was not treated as an event giving rise to termination of advisory agreements and only the acquisition of the advisers was so treated Further these letters were issued prior to the adoption of Rule 2a-6 and here we believe that the pledge falls within the provisions of that Rule In contrast foreclosure under the Pledge Agreement would result in change of actual control and management and would result in an assignment It should be noted that at the time of the approval of the Investment Management Agreement for the Masters Series negotiations with the bank were well underway and the sole shareholder of the Series the Investment Manager was fully informed about the terms of the Credit Agreement and the Pledge Agreement --

May 20 1996
In addition the requested relief is consistent with the policy underlying Section 15a The statutory provisions in Sections 15a were designed to inhibit trafficking in investment advisory contracts.11 As David Schenker counsel to the Commissions Investment Trust Study described the purpose of Section 15a4 Let me discuss 15a4 at this point Here you have situation where person assumes fiduciary obligation he is the manager of other peoples money If he is through with the job he ought to go home However instead of that they take these 10-year contracts which they have the right to assign to someone else This provision says that the management contract is personal that it cannot be assigned and that you cannot turn over the management of other peoples money to someone else.2 Although the term trafficking is not defined the term generally implies selling ones fiduciary office for gain and generally treating an advisory contract as transferable asset subject to sale pledge of voting securities on the other hand is not sale for these purposes since in the ordinary course of business the pledge should not result in any transfer of the investment advisory relationships Further the pledge of the Investment Manager securities will not result in turning over the management of other peoples money to someone else since the Investment Manager will continue to be solely responsible for the management of the Funds Hearings on 3580 before Subcomm of the Senate Comm on Banking and Currency 76th Cong 3d Sess 253 statement of David Schenker Chief Counsel Investment Trust Study 12 That theme was echoed by the General Counsel of the Commission in an opinion rendered shortly after the passage of the 1940 Act The legislative history of Section 15 manifests clear Congressional intention to prevent all trafficking in investment advisory contracts and to prevent an investment adviser from transferring his fiduciary obligations by turning over the management of the stockholders money to different person That intention is effectuated by the requirement in Section 15a that every investment advisory contract made after March 15 1940 must provide for its automatic termination upon assignment Investment Company Act Rel No 354 1942

May 20 1996
The type of transaction to which Section 15a4 is directed is the acquisition of an adviser or some or all of its assets the transaction pursuant to which the Investment Manager assumed its role as investment manager to each of the Elite Series funds and the closed-end funds in the Pilgrim America Group of Funds the Closed-End Funds As set forth in Section 1b6 of the 1940 Act this is the type of transaction that Congress intended Section 15a4 to protect against when control or management investmnt companies is transferred without the consent of their security holders We note that the transfer of management of the Elite Series funds and Closed-End Funds including the entry into the Investment Management Agreements was approved by shareholders of those Funds at meeting held on April 1995 Pilgrim Americas pledge of the Investment Manager securities is not this type of transaction Moreover requiring that the pledge of the Investment Manager securities be deemed an assignment that terminates the Investment Management Agreements and requires Fund shareholder approval of new agreements would serve no useful purpose Shareholders of the Elite Series funds and the Closed-End Funds approved the Investment Management Agreements approximately one year ago and shareholders of each of the Masters Series funds which are relatively new funds purchased their shares within the last year If the Pledge Agreement is deemed an assignment of the Investment Management Agreements shareholders would be burdened with detailed disclosure in proxy statement about the credit arrangements of the Investment Manager and its affiliates at time that such information is not otherwise considered necessary for prospectus disclosure It also would impose additional expenses upon Fund shareholders in connection with convening shareholder meeting and soliciting proxies The purposes of Section 15a would be more directly addressed by treating the foreclosure by pledgee on the securities of an investment adviser or the exercise by pledgee of voting rights with respect to such securities as the event that triggers prohibited assignment under Section 15a We believe therefore that the proposed pledge arrangement would not involve any of the abuses that Congress was concerned with in prohibiting assignments of investment advisory contracts The Request Is Sufficiently Novel And Potentially Beneficial To Warrant Staff Response The staff has stated that as matter of policy it will no longer respond to routine no-action or interpretive requests regarding the application of Rule 2a-6 and Rule 202a1-1 under the Investment Advisers Act of 1940 the corollary to Rule 2a-6 to particular transaction.3 The staff promulgated this no-response policy because it did not Nikko International Capital Management Company pub avail June 1987

May 20 1996 want to be in position of having to second guess the significance of change in control or management in internal corporate reorganizations.4 Determining whether change of actual control or management has occurred in these transactions is factual inquiry that is difficult to address in the context of no-action letter In addition the Commission and the staff understandably are not in position to make the investigation necessary to ascertain verify or evaluate th requisite factual information regarding these corporate reorganization transactions This however is discrete issue that does not turn on the application of detailed set of facts Thus we believe that this issue lends itself well to resolution in the no-action letter context In that regard we note that in adopting Rule 202a1-1 the corollary under the Investment Advisers Act to Rule 2a-6 the Commission stated that even though the staff ordinarily will not express any opinion in response to inquiries as to whether specific transaction would come within that Rule the staff will of course provide interpretive advice as to the general applicability of 202a1-1J.7 We believe the issue presented here goes to important policy issues respecting the general applicability of Rule 2a-6.18 Further in light of the Commissions recent adoption of Rules 6c-1O and 18f-39 and the proliferation of multiple class pricing structures it would be extremely useful to the fund industry if the staff issued determination as to whether the pledge of all or large block of an investment advisers voting securities in connection with the financing of Nikko International Capital Management Company pub avail June 1987 Templeton Investment Counsel Ltd pub avail Jan 22 1986 Spears Benzak Salomon Farrell Inc pub avail Jan 21 1986 Scudder Stevens Clark pub avail March 18 1985 and Heine Securities Corporation pub avail Feb 25 1985 15 Nikko Jnternational Capital Management Company pub avail June 1987 16 Investment Advisers Act Rel No 1013 Feb 20 1986 proposing Rule 202a1-1 Investment Advisers Act Rel No 1034 Sep 1986 18 We note that the staff has issued several no-action letters in this area since it adopted its non-response policy Mutual Benefit Dean Witter Discover Co pub avail Feb 1993 19 Investment Company Act Rel Nos 20915 Rule 18f-3 and 20916 Rule 6c-10 Feb 24 1995 Collectively these Rules permit open-end investment companies to implement multiple class pricing systems without the need for each company to obtain individual exemptive relief

May 20 1996 multiple class distribution arrangements would amount to an assignment for purposes of Sections 15a4 Although the staff has issued two favorable no-action letters addressing the pledge of an investment advisers securities in connection with an acquisition it is not obvious that these positions also would apply to the financing of multiple class distribution arrangements Finally favorable response to this request could pave the way for innovations in financing the sale of shares of mutual funds and provide simpler and less costly structure for financing the sale of mutual fund shares than arrangements that have been used to date Conclusion We believe that the requested relief falls squarely within the language of Rule 2a-6 is consistent generally with the staffs prior no-action positions and does not raise any of the policy concerns that Section 15a is designed to address Further we believe this issue is sufficiently novel non-fact intensive and potentially beneficial to warrant review and consideration by the staff Therefore we seek assurance that the staff of the Division of Investment Management would not recommend enforcement action to the Commission under Section 15a if Pilgrim America pledges all of the outstanding voting securities of the Investment Manager under the circumstances described above in connection with entering into the Credit Agreement In accordance with Securities Act Rel No 6269 Dec 1980 we have enclosed seven copies of this no-action request Please contact the undersigned at 202 626-3358 or Karen Anderberg at 202 626-3384 if you have any questions or comments on this matter Sincerely yours Jeffrey Puretz cc James Hennessy Esq Pilgrim America Investments Inc Thomas Kelly III Esq Dorsey Whitney